UK: No "General Presumption" in Favour of ADR

The debate which ensued following the well-publicised case of Dunnett v Railtrack (2002) has been recently considered by the Court of Appeal in the two linked cases of Halsey v Milton Keynes General NHS Trust and Steel v Joy and Halliday, in which judgment was given on 11 May 2004. The main issue in both appeals was when the court should consider imposing a costs sanction against a successful litigant on the ground that he has refused to take part in mediation.

In Dunnett v Railtrack a successful litigant was for the first time deprived of costs for refusing to mediate. Lord Justice Brooke (who presided over Dunnett) granted leave to appeal on this point in both Halsey and Steel and in Halsey (the lead case) invited mediation providers to intervene, giving the Court of Appeal the opportunity to revisit this issue and give constructive guidance.

Whilst these two cases are in the personal injury arena, the ramifications of the decisions and guidance from the Court of Appeal are relevant to all involved in litigation.

BACKGROUND

Halsey was a clinical negligence case brought by Mrs Halsey over the death of her husband. Steel was a case concerning apportionment between two different defendants where the claimant had been injured as a result of two successive torts, and liability for both accidents had been admitted.

The claimant in Halsey and the first defendant in Steel had made repeated offers to the defendant and second defendant respectively to mediate, backed up by the threat of seeking costs sanctions for a refusal. The offers were declined.

In Halsey, the main reasons given for the refusal to participate in mediation were that: liability was in dispute and no offers to settle would be made; it was disproportionate to hold a mediation given the value of the claim; and the claimant’s offers to mediate were perceived to be tactical to extract an economic settlement from the defendant (the claimant’s solicitors being on a conditional fee agreement with a 100% success uplift but not backed by an insurance policy).

In Steel the two defendants had fundamental differences on interpretation of the law on apportionment, which was the subject of Part 20 contribution proceedings brought by the first defendant against the second defendant.

The claimant in Halsey and the first defendant in Steel were unsuccessful at trial. Both unsuccessful parties submitted to the Court that a costs sanction should be imposed on the successful party for their refusal to mediate.

After lengthy submissions on costs, the trial judges held that on the facts of each case there was no reason to make any costs sanction for the refusals to mediate and that the successful parties were entitled to all their costs in the usual way.

Both unsuccessful parties appealed against the costs orders, quoting Dunnett.

INTERVENING PARTIES

The cases attracted much interest from the industry and their implications were widely debated, resulting in several intervening parties (the ADR Group, The Centre for Effective Dispute Resolution, the Civil Mediation Council and the Law Society) making submissions.

THE APPEALS

The Court of Appeal recognised that the most a court could do is to encourage ADR and to explore any reasons for resistance to it, for fear of breaching Article 6 of the European Convention of Human Rights (right of access to a court). If a party remains opposed to ADR despite robust encouragement from the court, this would be a relevant factor to be taken into account at the costs stage.

The Court of Appeal held that whilst a successful party could be deprived of some or all of his costs on the ground that he has refused to participate in ADR, such an order is an exception to the rule that costs should follow the event. The court held that the burden is on the unsuccessful party to show why there should be a departure from that general rule, the fundamental principle being that such a departure is not justified unless it is shown that the successful party acted unreasonably in refusing to agree to ADR.

The Court of Appeal recognised that there are many advantages to ADR over and above the court process, but there are also disadvantages and there should be no "general presumption" in favour of ADR.

In listing relevant factors in determining reasonableness the court held that no single factor will be decisive and the list is not exhaustive. The factors include: the nature of the dispute; the merits of the case; the extent to which other settlement methods had been attempted; whether the costs of ADR would be disproportionately high to the overall value of the claim; whether ADR would delay the trial of the action; and whether ADR had a reasonable prospect of success.

Their Lordships felt that an important factor to be considered was the merits of the case, to prevent the use (in hopeless cases) of tactical offers to mediate, with the threat of seeking costs sanctions. Given the debate on Dunnett and many parties feeling that they should attend mediations for fear of adverse costs orders if they refuse, this is a crucial part of the Judgment.

Their Lordships said: "Large organisations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing mediation even if ultimately successful. Courts should be particularly astute to this danger".

On the facts of each case, the appeals in both Halsey and Steel were dismissed.

In Halsey the court held that the claimant came nowhere near to showing that the defendant acted unreasonably in refusing mediation. The court upheld the trial judge’s view that the claimant’s solicitors’ offers of mediation were tactical to extract a monetary settlement and, hence, be entitled to their costs with a 100% uplift. The court also agreed with the defendant that the costs of a mediation would have been disproportionately high for the overall value of the claim.

In Steel the nature of the dispute was considered important. The claim against the second defendant raised a question of law and therefore the second defendant did not act unreasonably in wanting to have that dispute resolved by the court.

THE FUTURE

No doubt the decisions in Halsey and Steel will be the subject of much debate over the coming months but, at last, the Court of Appeal appears to have taken a sensible approach on the issue of whether, and when, to apply costs sanctions to a successful party who has refused to participate in ADR.

However, given the uncertainties surrounding what a court would regard as an unreasonable refusal of ADR, solicitors must take great care in advising clients on this issue.

There are no formal requirements for an arbitration agreement to be valid. However, the Arbitration Act 1996, which governs arbitration proceedings in England and Wales, only applies to arbitration agreements that are in writing (section 5(1)).

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